Recently,the Dual Control System of Total Energy Consumption and Energy Intensity has lit a Red Light in many provinces of China. The provinces named by the Ministry of Industry and Information Technology have taken measures to solve the energy consumption problem since there is only 4 months to the year end.Guangdong,Jiangsu,and other major chemical provinces made strict policies in limit using of electricity and in limit production to thousands of enterprises.Why there is energy limit and production limit?What impacts will it have to the China chemcial industry?
Many provinces pull the plug, cut the power and limit the production
Recently, many provinces such as Jiangsu, Guangdong,Yunnan, Qinghai, Ningxia, Henan, Chongqing, Guangxi,Sichuan, Inner Mongolia, Heilongjiang and others started to carry out power control measures of dual energy consumption to meet the control targets.Electricity restriction measure has gradually spread from the central and western regions of China to the eastern Yangtze River Delta and Pearl River Delta, etc.
Henan: The electricity limit will be for more than three weeks for some processing enterprises
Sichuan: Suspension of non-necessary production load, lighting load and office load.
Chongqing: Some factories cut power and stopped production in early August.
Inner Mongolia: The electricity price would be increased by not more than 10%.
Qinghai: An early warning of power limit is announced and the area of power limit continues to expand.
Ningxia: The power for high-level energy-consuming enterprises will be limited for a month.
Shaanxi: The power limit will be extended to the end of the year.Yulin city will limit the production of dual high enterprises to the level of 50-60%,
Yunnan: Two rounds of power limit have been launched. The average monthly output of industrial silicon from September to December shall be limited to less than 10% of August output (i. e., 90% reduction); the average monthly output of yellow phosphorus shall be limited to 10% of August 2021 output (i. e., 90% reduction).
Guangxi: Guangxi has introduced new dual control measures, requiring enterprises with the production of electrolytic aluminum, aluminum oxide, steel and cement limit their production starting from September
Shandong: there is a power limit of 9 hours daily,mainly at 15:00-24:00, the shortcoming time continued to September,The power limit measures would be implemented
Jiangsu: In early September, Jiangsu Provincial Department of Industry and Information Technology carried out special energy conservation supervision for enterprises with more than 50,000 tons of standard coal annually. In the cluster area of printing and dyeing , more than 1,000 enterprises will produce for two days and stop production for two days.
Zhejiang: Production will be stopped for the key energy-consuming enterprises until September 30.
Anhui: There is a power shortage of 2.5 million kilowatts and it is decided to start an orderly electricity consumption plan from September 22.
Guangdong: From September 16, the electricity plan work for two days and stop for 5 days was implemented
Reasons for power cut and production limit or shutdown
In essence, the power cut is due to the short of coal and power. The national coal output is almost same as 2019, but the power generation is increasing. The the coal inventory of various power plants are significantly in recent years.The reasons behind the coal shortage are as follows:
1.In the early coal supply side reform, open-air coal minesand some small coal mines with safety problems were closed. With good coal demand this year, the coal supply was quite in tight;
2.The export is very good this year, and the electricity consumption from light industry enterprises and low-end manufacturing industry is rising. But the power plants consume large amount of coals. The high price of coal has increased the production cost of power plants, which makes power plants at deficit;
3.The import of coal has changed from Australia to other countries. There is an increase in the import cost and global coal is also at high price.
Following is a diagram of China coal output in recent years
Why not expand the coal supply, but rather limit the power?
In fact, the total power generation in 2021 is not low.In the first half ofyear 2021, China has generated 3,871.7 billion kilowatt-hours,which is twice that of the United States.Meanwhile, China’s export has increased extremely rapid this year.
According to the data released by the General Administration of Customs, China’s total import and export of foreign trade has reached 3.43 trillion yuan in August, up by 18.9% comparing that of 2020. And the positive growth has been last for 15 consecutive month.In the first eight months of 2021, China’s total imports and exports reached 24.78 trillion yuan, up by 23.7% year on year and 22.8% over the same period in 2019.
The reason for export increase is that affected by the epidemic, the production in many countries are not normal, so the production task in China increases. With the increase in export,the demand of raw materials also increased. The import for commodities products also soared.From the end of 2020, the increase of steel price is caused by the price increase of iron ore and iron fine powder which are imported from other countries.The main production means in the manufacturing industry is raw materials and electricity.With the production task increases,China’s electricity demand continues to increase. Why not to expand the coal supply, but instead to limit electricity?On the one hand, the demand for power generation is increasing, while the cost of power generation is also increasing.Since the beginning of 2021, the supply and demand of domestic coal continues to be tight. The price of thermal coal is high for in low season. The coal prices have risen sharply and maintained a high level.With the high price, the production and sales costs of power enterprises are seriously inverted. And the operating pressure of power enterprises is prominent.According to the data of CLP, the unit cost of standard coal for large power generation groups has increased by 50.5% year on year. But the electricity price has remained same. The loss of coal power enterprises was significantly increased, and and the whole industry is in loss.It is estimated that the loss of every power generation will exceed 0.1 yuan for every 1 watt. And 100 million kilowatt will lose at least 10 million yuan. For the large power generation enterprises, their monthly loss will be over100 million yuan.On the one hand, the coal price remains high, on the other hand, the price of electricity is controlled by government. So it is difficult for power plants to have a balance. Thus, some power plants would rather generate less electricity.On the other hand,achieving the completion of industrial transformation requirements is urgent.China has to eliminate backward production capacity and implements supply-side reform.To realize the dual-carbon target and environmental protection need, as well as another important aim which is to realize industrial transformation. This is to change from traditional energy-cost production to emerging energy-saving production.In recent years, China has been working to reach this goal. But from last year, due to the epidemic,the demand and task of the of high energy consuming products under high has increased.With the epidemic raged and global manufacturing stalled, there is large manufacturing orders returning to the mainland.This leads to a high consumption of power in the first 3 quarters of 2021. Also,the price of raw material, which price is dominated by international capital has soared in 2021 leads to a high production cost.In addition, for the domestic and global enviromental protectio, China will need efficient production capacity in the future. To reduce the energy consumption and carbon emissions of traditional industries, large-scale technological innovation and device transformation is needed.Thus, in short term, to achieve the dual control goal, power and production limit is a way for traditional industries to achieve the goal.In addition, the inflation risks can be prevented in certain degree with the high soaring global price of iron, copper, oil, grain, and beans.
The Chinese government has been working hard for the dual control on energy consumption for the environmental protection. Due to the orders back to China from beginning of 2021, the busy production has lead to a high power consumption which is out of the expectation. After the review for the first 3 quarters, the energy consumption in many provinces is much higher. The consumption for the last 3 quarters already reaches the amount for the whole year. The main energy consuming projects are mainly in six industries, including petrochemical, coal power, chemical, steel, non-ferrous metal smelting and building materials. With the over-consumed energy and power, many provinces have adopted the production and power limit policy and these lead to the enterprises feel unprepared.
What is the effect for the different industries?
With the background of sudden power and production limit from provincial governments, the chemical industry index has a sharp rise, different chemical raw materials has soared in price, and many related stock listed companies also have the daily raising limit frequently.According to the Business agency, the chemical index was 1137 on September 1 and was 1262 on September 30. This is a record high in the cycle. Comparing with the lowest point of 598 points on April 08,2020, the index has rise by 111.04%.(Note: Period to 2011-12-01 till)
The new high price in chemical industry is mainly due to the dual control and power restriction policy. As there are 9 provinces and autonomous regions whose energy consumption was much up in the first 3 quarter year on year! And another 10 provinces’ energy consumption reduction rate can not meet the requirements. This means the target of dual control is not reached in the first half year. So, every province has heavy task to take new measures to ensure the realization of the whole year’s target.
In 2020, due to COVID-19, the global economic activities have been greatly affected.the poor demand leads to the low prices of crude oil and bulk chemicals downstream. While in 2021, with the gradual control of epidemic and recover of global business, the production has recovered much and demand also increase. As per the monitoring industry data of the business agency, it can be seen that the price of many chemical sub-industries has increased in 2021, and some is up by more than 100% year on year.
As per the data, the price of 79 kinds of products in chemical sector increased in September 2021, 57 of them increasing more than 5%. the top three commodities with price increase were phosphate (161.44%), yellow phosphorus (108.70%) and caustic soda (90.00%).
There were 18 products with price declines, and 6 products down by more than 5%. The top 3 declines were butanadiene (-33.32%), butanol (industrial grade) (-33.62%), and isooctanol (-30.90%).
|Product||Industry||Early Sep., price||Late Sep., price||Unit||Monthly increase or decrease|
|Rutile Titanium Dioxide||Chemical||3050||3200||USD/MT||4.92%|
In September, the price of phosphrous chemical price has reached a ten year high.Except the phosphorus ammonium market remains stable at a high price, phosphate and phosphate ore have sharp increase after yellow phosphorus. Under the dual control policy, yellow phosphorus related enterprises have serious limit in electricity and production capacity, thus the tight market supply situation cannot be changed in a short time.But till the end of September, most phosphorus chemical products have risen to a high level. Downstream enterprises need to be more cautious for take in new raw material. In general, there could be a certain pullback in the phosphorus chemical, but in a short time it may still remain at a high price.
Besides phosphrous chemical, the acetic acid industry also has big increase in September. The price of acetate products rose by 47.69%. Its upstream raw material methanol has increased by 37.86%. And downstream acetic anhydride by 54.92%, EVA increased by 38.82%, ethyl acetate by 25.23%, and PTA by 3.49%. Affected by the dual control policy, many acetic acid industry chain enterprises has stopped production and price has increased much. After the CHina National Holiday, with the production recovery in October, the supply and demand of the acetate industry chain has been more eased. According to the statistics of the production plan of acetic industry, the supply growth in October is expected to be more than the growth of demand, the price of acetate industry is expected to drop some in October.
In addition, the price of the chlor-alkali sector in the chemical industry has also increased, with caustic soda rising by 90% in September, calcium carbide by 39.45%, pvc by 34.45% and soda by 34.05%. With the dual control policy, the production capacity of chlorine-alkali industry in October is expected to be relatively low. With the relatively tight supply and high price of raw materials, it is expected that the prices of soda, caustic soda, baking soda would be stable at a high level.Actual situation will be depended on the demand.
Besides the basic chemical, chemical products such as organic pigments(Pigment Red 122, Pigment Violet 19, Pigment Yellow 74, Pigment Yellow 12), Anatase titanium Dioxide, Silicone leveling agent, Dimethicone, and optical brightener all have price increase at different range.
The recent large-scale power restriction would have a big impact on the manufacturing industry, and long-term environmental protection policy still exist, the price rise of commodity prices will transmitted to the downstream, which will squeeze the profit and living space of downstream enterprise .In addition, the control on high energy consumption industry is a long-term trend, so the short-term policy will only affect the production limit time and the trend for energy saving will not be changed. Therefore, with the inflation risk in the fourth quarter, the traditional high demand months will lead to a further price increase of chemical products. in the background of global energy shortage, product prices have rising trend, but the height of the chemical market would be subject to the demand situation.